Story Based Rules of Thumb

Some work, but many are story-based and do not stand up to scrutiny. In other words, can’t be proven with empirical evidence.

For example. one of the most firmly held beliefs in the trading world, and has been drummed into our noggins for years is, a stop loss is a preeminent method for averting risk. Yet, for equities, research has shown fixed stops losses hurt performance. And in many cases completely remove any edge a set of rules may have over dart throwing.

Ya I know, it feels good when a stock keeps moving lower and lower and a stop takes you out. On the other side, the research backed by up by two decades of test results on numerous short‐term trading strategies, suggests that stops get hit so often it is not random. Few trading strategies can overcome these aggregated losses.

Larry Connors and Stop Losses

Larry Connors conducted tests with different levels of stops. He tried 5%, 7.5% and 10% maximum loss stops. After he ran the tests he noticed that higher stops had better results. He then got curious and tested larger and larger stops all the way to a 50% stop, a level that, in essence, is not a stop. A general pattern emerged that the larger the stop the better the results. At this juncture, Connors decided to completely remove stops, giving him optimum results. From that point on he traded with no stops.

For many traders, stops are a must. Psychologically it allows them to take trades, especially difficult trades. But overall, the edges you see in strategies are compromised when stops are applied to them.

So then how do you get out of a trade if you don’t use a stop loss?

QiT uses something called a Dynamic Exit. We don’t set the stop loss at a set percentage or a set number of days but rather when a particular indicator reaches an exit point. This could be as simple as an exit when the 5-day moving average crosses a 15-day MA, when the MACD crosses down (or up), etc. or when the 2-day RSI hits a predetermined level. Here at QiT, we use the Connors RSI.

QiT uses something called a Dynamic Exit.

Different exits will give widely different test results. So the ability to backtest your exit to see which is the most beneficial is a huge advantage over paper-trading your exit strategy over time and “testing” different exit types. Another reason algorithms are superior to discretionary trading.

Another story is that Buy and Hold is “safer” than swing trading.

In order to examine the reasons behind this idea, you’ll need to look at the widely used Ibbotson Associates historical data, which “proves” that stocks have generated greater returns than bonds. Which in turn have generated higher returns than cash. Many have fallen for the premise and rationalization behind this data. Unfortunately, even experienced professionals accept these assertions without giving the idea any further thought.

The problem is the “100% invested 100% of the time” mindset is to assume that in the midst of amaximum drawdown one will have the intestinal fortitude to not abandon a strategy and simply stay the course. An achievement the majority of investors could not possibly attain. It can be extremely difficult for most investors to maintain an out-of-favor strategy for six months, let alone for many years.

Back to 1999

Going back to 1990 when the Dow traded around 2,750, you’ll find this index reverts back to within 1% of it’s opening value at least once, in every given year, and sometimes three or four times as was the case in 2011. I don’t know about you but that would drive me to drink.

I’d be rich if I had a nickel for every time I heard, “If only I had bought Apple when it IPO.” Apple IPOd at $22.00 in 1980 and it hung around its IPO price until 1985. It is trading a lot higher today and $5000 invested in 1980 would now be worth over a million. But who could have hung on to it that long? So yes you would be rich IF you had held on to AAPL since 1980. I have yet to meet a human being who has that kind discipline. Human psychology is not conducive to Buy and Hold.

And that was if you had the insight to buy AAPL and not one of the hundreds of stocks that have closed their doors since 1980.

Investors need to take their life savings off auto-pilot and start dealing with what’s happening today

Basically, investors need to spend more time and energy on their investments. They need to take their life savings off auto-pilot and start dealing with what’s happening today. And that means taking small chunks out of the trends then stepping aside – no more buy & hold.

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Roger

My background with Connors and Amibroker gave me greater appreciation for all the work you have put into getting the trading results that attracted me to QiT. I thank you for your efforts and look forward to continuing.

Great article! As I was reading it, I felt the crosshairs right on my forehead, having committed most of the sins you describe! I have long been a student of Larry Conners, his methods and research, I definitely believe in the system, but have often let my “trader” persona take ...

Your services pay for themselves. I have belonged to many trading services and trading rooms and I find you and your services to be the most honorable and compassionate to the little guy.Keep up the good work,

Today has been an awesome day across the board for me. I am at a new equity high on L2-RP, no losses on L3 ETF (to be honest only a handful of trades so far) and close to break even on L3 Ultra. I started trading the ultra signals ...

Mark

Good work. I am really very excited about the results so far.

I am quite pleased with your strategies and am ahead almost $4K since I started on 9/14. I also am an old Connors fan.

It took me only 5 minutes to put my trades onto IB tonight Thanks Jane- so easy and quick. You have lots of TIME putting on the trades. There is no stress and no decisions you have to make!! Easy Peesy!!

Jeff

Thanks for the awesome service. You really have something special here.

Subscribing to QiT allows me to save money and time by not having to pay for a datafeed, a trading platform, etc, and not spend hours running the stock screens, managing the datafeed, managing the trade signals, etc. Instead, all I do with QiT is check the signals each evening ...

Jane, just made all-time equity highs in my IRA thanks to Quantitrader, way to go!

Let me share with you two different perpectives of the QT system of algo trading.In 1978, I joined a large Wall Street firm as a retail broker. In the following 13 years as a broker and as a Principal, I saw several things that kept most brokerage clients from making ...

I, for one, sincerely appreciate all your efforts and the QiT system itself, and I'm looking forward to really seeing how it will work for me.

Eric

I joined this service because I love the process of Quant trading, removes all of the emotions. Many days I when I was traveling, I couldn't even tell you where the markets closed, but just entered my signals per the system and watched my account grow.

Mary

Trader Janie, I want to tell you how much that I am coming to admire you Your willingness to listen to our concerns and your new and repeated explanations to our concerns as well as your attempts at tweaking what you have already spent so much of your life ...

Mark M

I know that drawdowns are inevitable. In the past, this made me lose money by hopping from system A to system B to system C etc. Losing and losing and losing. Always leaving right before the winning periods got in :-) That is why I like Quantitrader. I will stay ...

Bob

I simply wanted to thank you for adding the Conservative play into QiT. I also appreciate adding the layer of clarity by identifying what each level means on the Signal sheet. Keep up the great work to continue improving QiT.

Ted

Trader Janie, your system looks terrific and thanks for posting all the histories in so much detail - most systems don't do that.

Don

Thanks for the new ETF Portfolio. I find it meets my trading style, and I can go short inside my IRA.

What a great short signal on VRX (Ultra). Entered at 38 dollar. 11% profit so far

Hi Jane,I just wanted to let you know I really appreciate the trade detail you post on the website. I like seeing the trade history of the past 30 days showing the entry and exit price. I compare this to my exit price just to make sure we are tracking ...